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The Biggest Argument For Peak Oil

It’s been two years since British oil and gas supermajor BP Plc. (NYSE: BP) dramatically declared that the world was already past Peak Oil demand. In the company’s 2020 Energy Outlook, chief executive Bernard Looney pledged that BP would increase its renewables spending twentyfold to $5 billion a year by 2030 and “... not enter any new countries for oil and gas exploration”.

That announcement came as a bit of a shocker given how aggressive BP has been in exploring new oil and gas frontiers.

When many analysts talk about Peak Oil, they are usually referring to that point in time when global oil demand enters a phase of terminal and irreversible decline. According to BP, this point has already come and gone, with oil demand slated to fall by at least 10% in the current decade and by as much as 50% over the next two. BP noted that historically, energy demand has risen steadily in tandem with global economic growth with few interruptions; however, the COVID-19 crisis and increased climate action might have permanently altered that playbook.

However, BP has been forced to do a mea culpa after it became clear that the COVID-19 pandemic that began more than two years ago has not resulted in a significant reduction in oil demand.

In its Energy Outlook 2022 edition, BP has revised down its forecast for global economic growth saying global GDP will only contract 1.5% by 2025 from 2019 levels compared to its earlier projection of a 2.5% contraction.

BP notes that its former grim outlook was drawn up prior to the Russian invasion of Ukraine-- another black swan event--which has driven global energy prices higher and cast an uncertain shadow over Russia’s oil and gas sector in recent months.

BP has predicted that oil demand will fall by 74% from 2021-2050, with global oil demand clocking in at a mere 24 million barrels per day by 2050. The International Energy Agency (IEA) has issued a similar forecast under a net-zero scenario though its trajectory of how the world will get there is different from BP’s. BP is, however, by no means the most bearish about global oil demand three decades out, with the Energy Watch Group predicting that oil demand will have virtually disappeared by that date.

Below is a table published by the Energy Intelligence Group that compares oil demand predictions by 28 organizations including a handful of Big Oil companies.

Oil Demand to 2050

(million b/d)

Peak

2030

2040

2050

2021-50

Energy Watch Group (0 Gt)

<2021

72

31

0

-100%

UNPRI 1.5 (2 Gt)

2025

88

46

20

-79

IEA Net-Zero (0 Gt)

<2021

72

43

24

-74

BP Net-Zero (2 Gt)

<2021

90

55

24

-74

UNPRI Forecast Policy (9 Gt)

2026

99

63

37

-61

IPCC 1.5°C Low Overshoot (1 Gt)

<2021

86

63

41

-56

Total Rupture

<2021

88

59

41

-56

Equinor Rebalance (9 Gt)

<2021

88

61

46

-51

BP Accelerated (10 Gt)

2025

96

72

47

-50

IPCC 1.5°C High Overshoot (6 Gt)

<2021

99

78

53

-44

DNV (19 Gt)

2024

85

69

49

-48

IEA Sustainable Development (8 Gt)

<2021

88

65

57

-39

Total Momentum

<2021

94

74

63

-33

IPCC 2°C (14 Gt)

2030

100

88

70

-26

IEA Announced Pledges (21 Gt)

2030

96

84

77

-18

BP New Momentum (31 Gt)

2030

101

92

81

-14

Equinor Reform (24 Gt)

2030

100

92

84

-11

Shell Sky 1.5 (18 Gt)

2025

100

94

85

-10

IPCC 2.5°C (29 Gt)

2040

105

107

99

+5

Shell Islands (34 Gt)

2040

102

104

102

+8

IEA Base (34 Gt)

2040

103

104

103

+9

IPCC 3°C (38 Gt)

2040

104

108

106

+13

Exxon

>2040

104

107

107

+14

Opec (34 Gt)

>2045

107

108

108

+15

Equinor Rivalry (32 Gt)

>2050

107

110

110

+17

IPCC 4°C (52 Gt)

2040

107

111

111

+18

Shell Waves (35 Gt)

2040

111

119

111

+18

US EIA (43 Gt)

>2050

109

117

126

+34%

Projected oil demand to 2030-50 in million barrels per day in a range of scenarios. When available, projected CO2 emissions in billion tons are shown in parenthesis (2021: 34 Gt). Source: BP, DNV, Equinor, EWG, Exxon Mobil, IEA, IPCC, Shell, TotalEnergies, UNPRI, US DOE

Source: Energy Intelligence Group

You will notice that no less than 10 organizations, including OPEC, Exxon Mobil (NYSE: XOM) and the Energy Information Administration (EIA), have predicted that global oil demand will actually grow as we go along and not shrink as most analysts have forecast.

Related: American Energy Bills Are Set To Soar This Winter

To be fair, it’s hard to be bullish about the long-term oil demand trend given that climate mandates are unlikely to ease, which coupled with the EV explosion as well as rapidly improving efficiency for gas-powered vehicles, are sure to limit oil consumption. Indeed, the Intergovernmental Panel on Climate Change's (IPCC) recently warned that keeping a 1.5ºC or even 2ºC warming limit in sight will require a big strengthening of current policies. In fact, Paris-compliant energy scenarios assume oil and gas demand will fall by respectively 40%-80% and 20%-60% between now and 2050 while gas demand needs to peak from 2025-2030.

Meanwhile,  a plethora of innovations, such as gasoline direct fuel injection, turbocharged engines, automatic transmissions with more gear ratios, and stop/start systems that shut off the engine instead of allowing it to idle has improved fuel efficiency of new vehicles quite dramatically.

New U.S. cars now travel nearly twice as far per gallon as they did at the start of the Obama administration, while light trucks and SUVs have increased efficiency by a more modest 59%. About 26% of crude production is consumed by the transport sector.

EVs may pose an even bigger threat to the fossil fuel industry over the long run.

According to Bloomberg New Energy Finance( BNEF) electric and fuel cell vehicles are already subtracting about 1.7 million daily barrels from global consumption, but will displace a whopping 21 million barrels per day in oil demand by 2050. BNEF estimates that road fuel oil demand will peak in 2027, but it will take another decade for the impact of advancements to be materially felt. Emissions will almost halve by 2050, but the sector will still be nowhere near net-zero. In the best case scenario, by the 2050s, fossil-derived road fuel demand will fall below levels last seen in the early 1970s. In this case, oil-related emissions will drop to 3.4 gigatons CO2 by 2050, down from almost 6.5Gt in 2019.

Overall, oil demand might remain steady or even grow appreciably over the next couple of years, maybe through 2030. The long-term outlook, however, looks murkier, depending on whom you listen to.

By Alex Kimani for Oilprice.com

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